Definition
Escrow Account
An account holding LP capital until closing conditions are met, after which it is released to the deal.
An escrow account holds subscription funds separately from the sponsor's own money until the conditions for closing are satisfied, commonly a minimum raise, completed KYC across the investor base, and executed documents. Its purpose is protection in both directions: LPs are not exposed to a sponsor holding their capital before a deal is certain, and the sponsor has a clean record of what was received and when. If a deal fails to close, escrowed funds are returned rather than having to be clawed back from a spent account. Escrow is typically operated by a bank or a licensed administrator rather than the sponsor, which is part of why fund administration is a regulated service rather than a bookkeeping one.